What do Co-op overdraft changes mean for you?

If you’ve got a current account with Co-operative Bank, dipping into the red will now cost you less. If you bank elsewhere, you might see your bank react to the Co-op’s move by making its own overdraft conditions more generous.

That’s not to say an overdraft is ever a preferred option. But going overdrawn is a fact of life for some people, so any trend towards having better debt terms is definitely welcome.

Withdrawn fees

The Co-op has announced that it will no longer hit customers with ‘unpaid item’ fees, previously £15 a pop, and that it is reducing several of its other overdraft charges.

Unpaid item fees are charged when a direct debit or other payment must be returned because there aren’t sufficient funds in your account to cover it.

“While in an ideal world, people should budget accordingly so not to go overdrawn, there are occasions where people will find themselves slipping into the red…”

Matthew Carter, the bank’s products and marketing director, said: “We wanted to develop an overdraft that would make a real difference to how customers manage their money.

“We have retained popular features such as our £20 buffer and reduced or abolished a number of other fees and charges.”

What is and isn’t changing?

The Co-op claims that borrowing will now be cheaper for all its customers.

It has abolished the £20 annual service fee for setting up an authorised overdraft.

There is no change to the Co-op’s £20 buffer, which means you can go over your limit by up to £20 without a fee being charged, although you will still be charged interest at 18.9% on what you owe.

Charges will be capped from now on, so that whereas previously you could be charged as much as £150 every three months in overdraft fees, you’ll now pay no more than £60 a quarter.

The once-a-year ‘fee waiver’ remains unchanged. This means that you’ll have six days to return to your agreed balance before a fee is charged.

Kevin Mountford, head of banking at MoneySuperMarket said: “This is a positive move from The Co-operative Bank and makes authorised overdrafts cheaper for customers who regularly dip into the red. While in an ideal world, people should budget accordingly so not to go overdrawn, there are occasions where people will find themselves slipping into the red.”

How overdraft fees compare

The Co-op may have reduced charges, but it’s still not the cheapest for overdrafts.

According to number-crunching by MoneySuperMarket, going overdrawn by £500 for 30 days would cost you £3.27 if you are a First Direct 1st Account customer, compared to £7.46 if you are a Co-op Current Account Plus customer.

Annually, charges for being overdrawn mount up to £39.24 with First Direct, but £89.52 with The Co-op.

First Direct offers a £250 interest-free overdraft. Interest is charged at 15.9% thereafter.

Worst for overdraft charges

The Co-op’s overdraft charges might not be the very cheapest, but they’ll certainly cost you a lot less than some other banks.

If you’ve got a Halifax Reward current account, which charges £1 per day for using its overdraft up to £1,999.99, you’ll be looking at fees of £30 a month for being £500 overdrawn. Over a year, the cost is £360 (12 x £30).

Santander’s Everyday Current Account also charges £1 each day you dip into the red, so again you’d pay £360 if you were overdrawn for a year.

If you’re a Barclays current account customer, you won’t fare much better.

Charges are tiered, so you don’t pay anything if you go up to £15 overdrawn, but you’ll pay 75p a day if you’re between £15 and £1,000 overdrawn.

This increases to £1.50 a day if you’re overdrawn between £1,000 and £2,000 and £2 a day if you’re overdrawn by more than £2,000.

It’ll therefore cost you £22.50 a month, or £270 a year, if you’re £500 overdrawn.

Check charges

If your current account isn’t with The Co-op, and you use your arranged overdraft regularly, check how much you’re being charged.

Kevin Mountford said; “The fees and charges for using an authorised overdraft range significantly between banks and building societies so it’s important to make sure you understand your account usage and don’t pay over the odds for your borrowing.

“It’s vital to have an agreed overdraft facility in place as unauthorised borrowing will cost you even more or could lead to regular payments being declined.”

Based on Cost of £500 Overdraft after Introductory Offers

30 Days

Provider

Account

Authorised Overdraft Rate (Typical EAR)

Monthly

Annual

First Direct

1st Account

£250 interest free 15.9% thereafter

£3.27

£39.24

The Co-operative Bank

Current Account Plus

£20 buffer 18.9%

£7.46

£89.52

Nationwide BS

FlexAccount

18.9%

£7.77

£93.24

HSBC

Bank Account

19.9%

£8.18

£98.16

Norwich & Peterborough BS

Gold Classic Account

£5 per month plus 17.9%

£12.36

£148.32

Lloyds Bank

Classic Account

19.94% plus £6 overdraft usage fee £25 interest free buffer included

£13.78

£165.36

Royal Bank of Scotland/NatWest

Select Account

£10 interest free 19.89% + £6 monthly overdraft fee

£14.01

£168.12

Barclays

Barclays Bank Account

£0 up to £15 Up to £1,000 - 75p per day Up to £2,000 - £1.50 per day Over £2,000 - £3 per day

£22.50

£270.00

Santander

Everyday Current Account

£1 per day

£30.00

£360.00

Halifax

Reward Current Account

Up to £1,999 - £1 per day £2,000 - £2,999.99 - £2 per day £3,000 and over - £3 per day

£30.00

£360.00

Sourced by www.moneysupermarket.com 14.04.2015

Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.